Comments on Professor Louis T. Wells, “ Why do

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Comments on Professor
Louis T. Wells, “Why do
some Foreign Investors
Avoid International
Protections when their
Investments are in
Trouble?”
Takashi SHIMIZU
The University of Tokyo
Background: Dilemmas for
Investors and Host Countries
Host Country: Promotion of
investments v. Control over
investments (nationalization,
regulation)
‹ Investors (Multinationals): Exploitation
of local opportunities (natural
resources, markets) v. Adaptation to
local environment (technology transfer,
increase of employment opportunities)
‹
2
Host Governments
Investors
Promotion of
investments
Exploitation
of local
opportunities
Control over
investments
Adaptation to
local
environment
3
A Summary of the Presentation
‹
External protections (new assurances)
• Arbitration
• Official political risk assurance
‹
ex. MIGA, OPIC(U.S.), NEXI(Japan)
• Home government intervention
‹
The number of arbitration cases is
increasing. But do arbitration and
other protection measures really
useful for investors?
4
‹
Indonesian power projects
• After the Asian Currency Crisis, many contracts
were renegotiated.
• Who refused renegotiation and utilized protections
(arbitration or insurance) ? : firms that were
exiting the business in Indonesia.
• Most of these companies were backed up by the
U.S. government
←Firms with other business do not want to use
protections, i.e., they do not want to be “hostile”
against the Indonesian government.
5
‹
‹
Attitude of Japanese companies against
arbitration: Maybe different, to some
extent.
Problems of Arbitration: Rigid
interpretation of contract, inconsistent
results (lack of standards), lack of
consideration of national goals,
asymmetric access to arbitration,
damages orientation (discouraging
settlement)
6
Comments and Questions
‹
Neutrality and Predictability:
• Some problems of arbitration seem to
be related to perceived neutrality and
predictability of decisions of legal
procedures, i.e., arbitration proceedings
and domestic judicial proceedings.
Host governments may think arbitration
proceedings are neither neutral nor
predictable.
‹ Investors may think domestic judicial
proceedings are neither neutral nor
predictable. Even so, they may avoid using
arbitration because they don’t want to be
hostile.
‹
7
‹
Asymmetry:
• An investor can initiate arbitration proceedings
even though the host government (and a
domestic investor) cannot.
• In many BITs, investors have an option to bring
a suit to a domestic court or to an arbitral
tribunal (“fork in the road” clause and “No Uturn” clause). These clauses make the situation
worse for host countries.
• Do we have to eliminate these clauses to
alleviate this asymmetry problem?
8
‹
How can we solve the problem?
• Improvement of arbitration
Neutral and predictable arbitration?
‹ Appeal Process
‹ Symmetric access – including abandonment
of “fork in the road” clauses?
‹ Encouraging settlement – It seems difficult
under the Common law tradition (arbitration
and mediation must be separated).
‹
9
• Improvement of the domestic judicial system
of host country and abandonment of
arbitration.
There is no asymmetry regarding bringing a suit in a
national court. Moreover, it can encourage settlement.
‹ Shimizu (2008, in Japanese) showed arbitration is
basically useful for investors, but not so useful and
may be harmful when domestic judicial proceedings
are neutral and predictable.
‹ No arbitration in the U.S. – Australia FTA
‹ Needless to say, other countries cannot intervene in
the host country to remake its judicial system. These
countries, however, can encourage the host country
to improve neutrality and predictability of its judicial
system.
10
‹
‹
Japanese Companies
• If host countries have given better
investment protection to some Japanese
companies, because of their advanced
technology and/or their positive attitude
toward technology transfer, there was
no need for these Japanese companies
to use arbitration (like the old ITT in
Indonesia). Is this explanation possible?
11
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